Startups Lead a New Rush Into ACA’s Now-Profitable Markets

One wild card is the uncertainty about the ACA risk-adjustment program.

By Zachary Tracer|July 10, 2018 at 07:42 PM

X

Share with Email

sending now...

Thank you for sharing!

Your article was successfully shared with the contacts you provided.

(Photo: Allison Bell/TA)

Republicans remain eager to gut the Affordable Care Act, but some health plans say there’s no time like the present to be in the Obamacare business.

Rising premiums in the marketplaces created by the health law are enticing insurers, who are looking past the political turbulence and a curveball this weekend from the Trump administration. More than a dozen insurers plan to enter new Obamacare markets for 2019, according to the Kaiser Family Foundation.

Among them is the venture capital-backed startup Bright Health. On Wednesday, the company, which already offers ACA plans in two markets, will roll out offerings in five more cities for next year, according to Chief Executive Officer Bob Sheehy.

“Early on, there was the wrong model and the wrong pricing level,” said Sheehy, a former UnitedHealth Group Inc. executive. “Now the market’s stabilized, so we think it’s a terrific opportunity.”

Oscar Insurance Corp., another startup, will enter six new markets. More established insurers including Centene Corp. and Medica have also announced expansion plans.

“For the insurers that did stick around in the individual market, 2018 is shaping up to be a very profitable year,” said Cynthia Cox, director for the Program for the Study of Health Reform and Private Insurance at the Kaiser Family Foundation. “They’ve managed to raise premiums enough to cover their costs, and then some.”

Changing Market

It’s a reversal from last year, when insurers exited some states as losses mounted and President Donald Trump vowed to dismantle the program. The companies that remained raised rates significantly, with premiums climbing by an average of 27% from 2017 to 2018.

Over the weekend, the Trump administration said it will suspend an ACA program that moves funds to insurers with sicker customers. Health insurance lobbying groups said halting the so-called risk-adjustment program could cause some companies to stop selling plans in some markets or boost premiums even more.

Bright and Oscar both said that despite the move, they’re going ahead with their expansion plans. Medica is entering Oklahoma, adding a second option to that state’s Obamacare market.

“We’re watching the situation closely. We aren’t making any changes to our 2019 plans at this time,” Greg Bury, a spokesman for Medica, said of the risk-adjustment program.

The expansions will give more options to customers in some states where choices had dwindled. For 2018, about a quarter of people signing up for ACA plans could select only one insurer, according to data compiled by Bloomberg. A similar percentage could pick from two.

Trump has boasted that his actions have helped undermine the 2010 law. The administration has taken several steps meant to offer alternatives to Affordable Care Act plans, or to destabilize its markets.

“We’ve essentially gutted it anyway,” Trump told supporters in a June speech. “Obamacare is on its last legs. It’s almost finished.” On Tuesday, his administration announced it would cut funding for “navigators” who help people find and sign up for Obamacare plans to $10 million, from $36 million last year, calling the program ineffective.

Insurers can adapt to market turmoil by raising rates. Premiums are set to climb again in 2019, according to a preliminary survey from Kaiser. Insurers began filing rate plans with state regulators this spring and will wrap up in the fall ahead of enrollment season.

Pain for Some

Consumers have less flexibility. Rising premiums can eat into household budgets, and people who make too much money to qualify for federal help — but not enough to carry a heavier insurance burden on their own — could opt to go without coverage.

Additionally, Congress scrapped the ACA’s requirement that all individuals purchase health coverage, and Trump is set to allow skimpier plans to be sold more widely. Those forces could pull healthier people out of ACA plans and cause costs to surge for the sicker people who stay.

Susanna Williams, a self-employed consultant who lives in Brooklyn, has seen her monthly spending on health insurance climb from $400.37 in 2015 to $470.80 this year, even as she downgraded her coverage to save money. Her insurer, Oscar, is boosting rates again for 2019, and Williams is slated to see an increase to $518.33 for a low-level bronze plan.

“I cannot justify paying that much money for a health care service that I use once a year,” she said. She’s hoping to land a full-time job with health insurance before she has to renew her coverage.

She makes too much to qualify for government subsidies, which are available to people making up to four times the poverty level, or about $48,000 a year for an individual.

Centene Corp., which specializes in health coverage for low-income people, has filed plans to enter North Carolina, where the vast majority of the state is served by just one insurer. In Iowa, Wellmark, a regional insurer, plans to rejoin the ACA market for 2019.

Centene and Wellmark didn’t respond to requests for comment on the risk adjustment suspension.

Oscar and Bright are targeting locations where options had dwindled, entering Arizona and Tennessee. Every Arizona county had just one insurance option this year, while no part of Tennessee had more than two.

For 2019, Bright, which has raised $240 million from investors, will also sell Medicare Advantage plans for seniors in six new cities, including New York; Cincinnati; and Nashville, Tennessee; bringing the total number of markets where the company sells the private health plans for seniors to nine.

Both startups are forming partnerships with hospitals as a shortcut to developing networks of care providers in their new cities. The strategy can also help the companies control costs because the hospitals and insurers both benefit from lower medical spending.

Sheehy said Bright will probably raise funds again next year to pay for expansion in 2020. Mario Schlosser, the CEO of Oscar, said his company will likely continue to expand into about six markets a year. Oscar, which has raised about $900 million from investors, was valued at $3.2 billion in its most recent funding round.

“The longer we are in the market, the more confident we’ve gotten,” Schlosser said. “We see, in all these various places we’re in, that people want the product we have.”

ThinkAdvisor

Free unlimited access to ThinkAdvisor.com which provides advisors, like you, with comprehensive coverage of the products, services and trends necessary to guide your clients in making critical wealth, health and life decisions.

Exclusive discounts on ALM and ThinkAdvisor events.

Access to other award-winning ALM websites including TreasuryandRisk.com and Law.com.